State auditors identified a litany of issues with Arizona’s $1 billion school voucher program that they say could put public dollars at risk.
In a new report, the Arizona Auditor General’s Office accused the Department of Education of failing to properly administer the Empowerment Scholarship Accounts, or ESA, program that is now used by more than 100,000 students across the state to pay for private or homeschool costs.
That includes allegations that the department did not always follow up on potentially problematic purchases and is haphazardly applying its own policy that automatically greenlights transactions under $2,000 before reviewing them later.
For instance, the auditors reviewed a sample of 63 voucher transactions between July 2023 to October 2025 totaling $251,446. They found that 25 purchases worth a combined total of $86,599, or 34% of the total dollars examined, had issues.
That includes 11 transactions that lacked proper documentation to show the purchases were related to a proper education expense and seven that lacked accreditation documentation showing the vendor was qualified to provide instruction.
Only two purchases from the sample, totaling about $2,000, were explicitly deemed unallowable expenses. However, auditors found $17,531 in purchases with “indicators of possible misuse” and nearly $10,000 in overpayments.
For example, auditors found evidence that a voucher user sent nearly $9,000 in tuition payments to a PayPal account registered in their name. ClassWallet, a third-party contracted by the state to help administer the voucher program, flagged the purchase for further review.
“However, the program lacked documentation that demonstrated Program management reviewed this purchase to ensure it was allowable and complied with Program rules,” according to the report.
The report says the department referred the case to the Attorney General’s Office after it was flagged by auditors.
Horne: ESA program 'is being operated appropriately'
In a response to state auditors, Department of Education officials disagreed with a bulk of the findings.
And Superintendent of Public Instruction Tom Horne said the program “is being operated appropriately and has been falsely and unfairly attacked by its critics.”
“The Auditor General’s report completely demolishes the myth about misspending in the ESA program,” Horne said in a statement. “The potential is miniscule and far less than other government programs. With a budget of a billion dollars, the Auditor General found approximately $86,000 – that is 0.0086 percent – of potential ESA dollars at risk.”
In the report, the Auditor General’s Office acknowledged that the 63 transactions it reviewed should not be “projected to the entire population,” meaning auditors are not suggesting the overall program has a 34% error rate.
However, they argue the transactions do expose systemic problems with the way the department is administering the voucher program, which is expected to cost Arizona more than $1.2 billion next year.
“By not conducting or timely conducting reviews of transactions that were identified as unallowable or missing required documentation, the Program’s public monies may be at risk of being misused,” according to the report.
Risk-based audits
Auditors connected many of the issues to Horne’s decision to fast-track approval of smaller purchases in late 2024. That was in response to an approval backlog that had forced some families to wait months before being reimbursed for their school purchases.
The report noted that the Department of Education did not consult with Auditor General when developing its process for reviewing purchases, which appears to violate a state law passed in 2024, which requires it to develop “risk-based auditing procedures” for the voucher program “in consultation with the Office of the Auditor General.”
According to the report, auditors identified 2.3 million transactions totaling $654 million that were automatically processed under the policy between Dec. 17, 2024 and Jan. 31, 2026.
And auditors said that policy has been applied unevenly and allowed many purchases to go unvetted.
For instance, between September 2025 and January 2026, the department used its risk assessment tools to look at transactions made through ClassWallet. But the department didn’t apply the same scrutiny to prepaid debit cards or reimbursements, which accounted for around $102 million in purchases during the time period.
Auditors also said the department told them that it planned to audit 30% of those smaller purchases after the fact.
But, in reality, they only audited between 6.5% and 23.9% of transactions during a five-week period in October 2025, according to the report.
The Department of Education largely dismissed the allegations and defended its auditing process.
“The auditor general premises her finding on 2 arguments. First, her team indicated that we randomly chose orders to audit. That is untrue,” according to the department’s official response. “ADE conducts risk-based audits of the nearly 2 million orders submitted by ESA families annually.”
The department said it considers a variety of factors while screening purchases, including keyword searches for unallowable items, audits of riskier transaction types and AI tools – though the auditor noted ADE never provided evidence those AI tools are in use.
Staffing
At the time, Horne said the decision was necessary, because the Legislature had not provided his department with funding to hire staff to keep up with the explosive growth in the ESA program after Republicans expanded eligibility to all students in the state in 2022.
Those problems persist.
“We operate on four-tenths of 1 percent of funds distributed to operate this program,” the department told auditors. “That extremely low level of funding does not allow for the Program to do much more than to prioritize day-to-day operations.”
Republican lawmakers who control the state Legislature have acknowledged that staffing at the department hasn’t kept pace with the voucher program, which has seen enrollment climb by more than 700% since universal expansion went into effect.
But they have done little to bolster ESA staff despite lobbying by Horne, their fellow Republican.
Lawmakers did give the department a $10 million budget bump in 2023 that could have been used for staffing. But Horne, and the legislator who inserted that line item into the budget, said that money was earmarked for marketing, not running, the voucher program.
But whether more staffing will solve the problem is an open question.
Auditors said the department has failed to document policies for reviewing voucher purchases or to provide formal or ongoing training to staff.
Again, the Department of Education disagreed with that assessment.
“As explained to the auditor general's team, we train through direct instruction by experienced team members, demonstrations on live data in ClassWallet, and guided review and instruction of the ESA handbook,” according to ADE’s response.
The department said it would document its procedures when it has enough staff to do so.
Transcript
MARK BRODIE: So, what are some of the key takeaways from this report?
WAYNE SCHUTSKY: One of the big ones was that essentially, the Department of Education is not auditing these purchases in a way, in the way that they said they were. A lot of listeners might remember that a while back, there was a huge backlog in getting reimbursements approved for these families. They were waiting months. They were complaining.
So Superintendent Tom Horne decided that he was going to basically approve everything under $2,000 and then go back and do what they called a risk-based audit. So try and pull a sample of what seemed like risky transactions, make sure that they were appropriate after the fact, and pull back that money if they weren’t.
The Auditor General said that the department told them at one point that they were going, anywhere between 25% and 30% of those transactions they were going to audit. But when they actually looked at a five-week period in October last year, they found as few as 6% in a week getting —
MARK BRODIE: Ah. That’s a lot less.
WAYNE SCHUTSKY: And then up to about 25%, 26%, anywhere between those on the given week, so that they weren’t doing it correctly. And they also took issue with a lot of the ways they were identifying what’s a risky transaction. Just a kind of a — auditors telling the department that you’re not doing this quite right.
MARK BRODIE: Well, so I think that’s an important distinction, right? Because the Auditor General’s report didn’t necessarily find that there were problems, there was fraud in how people were spending the money. It seems like it was more telling the Department of Education how you are administering this could lead to that.
WAYNE SCHUTSKY: Yeah. There were definitely some unallowable expenses that were identified, as well as some overpayments, things like that. But it was a relatively small fraction of what the Auditor General looked at.
But yeah, it was more of those processes. It was that we don’t know what we don’t know, and the way you’re auditing isn’t going to identify a lot of these problems. So whether it’s not looking at enough transactions like you said you were or not following up. The audit said there were even times when the department identified at some point a transaction but either took months and months and months to actually follow up and find out whether it was good or didn’t follow up at all.
And they said they ... took a, a random sampling of like 60-plus transactions in over two years since the program went into effect. And of the $250,000 spent on those transactions, they found $83,000 had potential issues. A small amount of those were actual unallowables, but then there was others that potentially could have been unallowable and needed further investigation, didn’t have the right documentation — which is required by the program, say like an invoice for tuition.
So all those things. So 34%. Now, they said that’s not necessarily representative of the whole. They’re not saying there’s a 34% error rate across the entire program. But they said this does prove that maybe these processes aren’t as tight as they should be.
MARK BRODIE: What did Tom Horne, the superintendent of public instruction who runs the Education Department, have to say about this?
WAYNE SCHUTSKY: He more or less said, “You don’t know what you’re talking about.”
MARK BRODIE: OK.
WAYNE SCHUTSKY: He said the program’s, program’s being run appropriately, and there was a lengthy response within the Auditor General’s report from the department where ... there’s some barbed responses in there where they kind of said, “We’ve tried to explain this to you, and you just don’t understand what we’re doing.”
They said that 30% of transactions is a fluctuating amount, depending on how much time we have, how many transactions are coming in. That’s a goal, but it can change. So basically, just kind of dismissed it and said that he believes that they’re doing a good job.
MARK BRODIE: Horne has been saying for a while that he would like to be able to do more actual auditing, but he just doesn’t have the staff. Like, the Legislature doesn’t give him enough money to hire the staff. Was that part of the response also?
WAYNE SCHUTSKY: Yeah, that was littered throughout there. They actually tacitly kind of agreed with some stuff that the Auditor General said, which is that you don’t actually have any of these processes written down. So, you don’t have like a guide that just says, “This is how we do this.”
And basically, they said, “Yeah, we don’t have the staff.” This staff has not grown much since the program expanded from around 12,000 students back before universal expansion to today, as you mentioned, 100,000 students. The staff has hardly grown since then.
So a lot of people agree that they don’t have enough staff to do this. And so, he said, “Yeah, things like documentation, we would love to do that, but we’re literally just have to do day’s operations. Like, that’s all we have people for. If we get more people, then we’d love to put people on that.”
MARK BRODIE: What have folks at the state Legislature had to say? Obviously, the Legislature is away from the Capitol for a little bit, but I would imagine that, you know, this is always such a hot button issue among legislators. I’m imagining they had stuff to say about this.
WAYNE SCHUTSKY: Yeah, yeah, we’ve gotten a lot of responses. Democrats — who have obviously been critical of the program wanting to rein it in, saying it’s unaccountable — have said that this justifies a full audit of the program. As I said, the transactions they looked at so far aren’t really representative of the whole, according to the Auditor General’s report.
So now Democrats want a full audit of all program, so we can finally kind of get a concrete idea of exactly how much fraud, mess ups, all this different stuff — how many errors there are in this program that’s using lots of taxpayer money.
And I did get a response from House Speaker Steve Montenegro (R-Goodyear), who didn’t quite go that far, but he did say that, you know, these concerns are serious and that he would like to see them acted upon, the Auditor General’s recommendations, pretty quickly.
MARK BRODIE: So, did the department in its response say that it was going to make any changes or try to tighten anything up that the Auditor General’s office found needed tightening?
WAYNE SCHUTSKY: I mean, not really. In most cases they said, “You’re just pointing out things we’re already doing,” whereas the Auditor General was kind of saying, “Well, these are things you’re saying you’re doing, but in some cases, we didn’t find evidence of that.” Outside of the things like documenting the training process for their employees and the process for auditing stuff, they said, “If we get the staff, we would like to do that.”
MARK BRODIE: Well, so I guess then that leaves the question: Given where we are in the legislative session, does it look like there are any changes coming before next year?
WAYNE SCHUTSKY: I think it’s too soon to tell at this point. Obviously Montenegro’s statement didn’t dismiss this outright, so it’s, it could be part of budget negotiations. Something like a few years ago, they actually included in the state budget a requirement that the department work with the Auditor General’s office to develop their risk-based auditing process. So, it can be a part of the budget.
Notably, what this report pointed out is that the, the department is not complying with that. The Auditor General said, “They haven’t spoken to us. When they developed this after the fact for smaller purchases review, they did not consult us on how they created that.”
MARK BRODIE: Interesting. All right. Lots more to come on this, I suspect. That is Wayne Schutsky from KJZZ’s politics desk. Wayne, thanks as always.
WAYNE SCHUTSKY: Yep, thank you.
